Be clear on clawbacks

A recent complaint to dispute resolution service FSCL, in which a client complained about a $2,500 clawback fee, underlines the ongoing friction between advisers and clients on the topic.

A man received the $2,500 bill as he had refinanced his loan within 24 months, with the original lender clawing back its commission from the broker.

FSCL said the adviser in question was entitled to a fee, but sided with the complainant, as the broker's terms of engagement were deemed to be too vague.

While clawbacks are a vital tool to compensate advisers when clients change course, top advisers say the industry needs to be clear on the scope and size of potential fees.

Q Group's Geoff Bawden supports clawbacks, "The banks are very aggressive in exercising their clawback provisions and the adviser can sometimes find themselves out of pocket having done a significant amount of work."

He said: "Either way it is all about written agreement and disclosure. Any fee needs to be discussed, agreed to and be mandated in writing in advance."

Hamish Patel of Mortgages Online said, "Passing on some of the clawback to the client can be ok, as long as it is clearly disclosed to the client upfront." He said his business caps the cost at $2,000, and only if the company is charged a clawback.

He said: "It would be unfair to pass on the full amount of the clawbacks to most clients as, in a way, we are not paid for the time spent on that particular client, but rather the cost of running a business which is only paid on success of procurement."

Comments from our readers

On 18 January 2021 at 11:49 am JeffQV said:

Our Terms of Engagement are crystal clear in terms of Clawback, the amount, the way it's calculated and what triggers it. Transparency is vital especially going into the new compliance world in March.

On 18 January 2021 at 1:31 pm Laurie said:

Personally, for me, clawbacks as unpalatable as they are, are just part and parcel of the business we are in. I have never in 20+ years had a clawback because of a client refinancing. Only relationship splits, people buying and reselling, for example. In almost every case I have helped arrange a new mortgage and recouped the clawback. Sure, had to work twice, for the same remuneration, but the upside has been retaining the client relationship and receiving ongoing referrals. So all in all, the bottom line has been good. I question, why should a client be disadvantaged by using a mortgage adviser by facing a potential cost that they would otherwise not face by working with a bank directly? It's the net result that I look at each financial year rather than profitability per settlement.

Mortgage advisers must clearly disclose clawback agreements with clients, industry leaders say, as disputes on the topic continue to emerge.

Monday, January 18th 2021, 10:42AM 2 Comments

Comments from our readers

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